Housing and Rental Affordability Report

Housing and Rental Affordability Report

Strategic Planning UnitMornington Peninsula Shire

February 2016

Housing and Rental Affordability Report | i

Contents

Executive Summary iv

1 Introduction 1

1.1 Background and Context 1

1.2 Methodology 3

1.2.1 Housing Affordability Ratio 4

1.2.2 Rental Affordability Ratio 4

1.2.3 Gross Weekly Household Income 5

1.3 Report Structure 6

2 Housing Affordability 7

2.1 Housing Affordability Analysis at the Shire Level 7

2.1.1 Houses 7

2.1.2 Units 9

2.2 Housing Affordability Analysis at the Township Level 11

2.2.1 Median House Price Comparisons 11

2.2.2 Housing Affordability Comparisons 12

3 Rental Affordability 14

3.1 Rental Affordability Analysis at the Shire Level 14

3.1.1 One Bedroom Dwellings – Flats 14

3.1.2 Two Bedroom Dwellings – Flats and Houses 17

3.1.3 Three Bedroom Dwellings – Flats and Houses 21

3.1.4 Four Bedroom Dwellings – Houses 25

3.2 Rental Affordability Analysis at the Township Level 28

3.2.1 Two Bedroom Dwellings 28

3.2.2 Three Bedroom Dwellings 29

3.2.3 Four Bedroom Dwellings 30

4 Factors Underlying the Decline in Affordability 32

4.1 Lower Interest Rates Post 1996 32

4.2 Assistance to First Home Buyers 32

4.3 Negative Gearing and Capital Gains Tax Concession 33

4.4 Population Growth 34

5 Conclusion 36

References 39

Appendix 40

Housing and Rental Affordability Report | ii

List of Figures

Figure 1.1: Housing tenure – Mornington Peninsula (per cent of total households) 2

Figure 1.2: Housing tenure – Greater Melbourne (per cent of total households) 2

Figure 1.3: Housing tenure – inter-regional and intertemporal comparisons (per cent of

total households) 3

Figure 2.1: Median house price, Mornington Peninsula and Metropolitan Melbourne

(nominal dollars) 7

Figure 2.2: Median unit price, Mornington Peninsula and Metropolitan Melbourne

(nominal dollars) 9

Figure 2.3: Median house price comparisons across 30 townships (nominal dollars) 11

Figure 2.4: Average annual price growth comparisons across 30 townships (per cent per

annum) 12

Figure 2.5: Housing affordability comparisons for median income family households 12

Figure 2.6: Housing affordability comparisons for median income non-family households 13

Figure 3.1: Median rent of one bedroom flats, Mornington Peninsula and Greater

Melbourne (dollars per week) 14

Figure 3.2: Affordable lettings of one bedroom dwellings 16

Figure 3.3: Median rent of two bedroom flats, Mornington Peninsula and Greater


Figure 3.4: Median rent of two bedroom houses, Mornington Peninsula and Greater


Figure 3.5: Affordable lettings of two bedroom dwellings 20

Figure 3.6: Median rent of three bedroom flats, Mornington Peninsula and Greater


Figure 3.7: Median rent of three bedroom houses, Mornington Peninsula and Greater


Figure 3.8: Affordable lettings of three bedroom dwellings 24

Figure 3.9: Median rent of four bedroom houses, Mornington Peninsula and Greater


Figure 3.10: Affordable lettings of four bedroom dwellings 27

Figure 3.11: Rental affordability comparisons for family households in two bedroom

dwellings 28

Figure 3.12: Rental affordability comparisons for non-family households in two bedroom

dwellings 29

Figure 3.13: Rental affordability comparisons for family households in three bedroom

dwellings 29

Figure 3.14: Rental affordability comparisons for non-family households in three

bedroom dwellings 30

Figure 3.15: Rental affordability comparisons for family households in four bedroom

dwellings 31

Figure 3.16: Rental affordability comparisons for non-family households in four bedroom

dwellings 31

Figure 4.1: Indicator lending rates for housing loans (per cent per annum) 32

Figure 4.2: Spending on cash assistance to first home buyers, 1965-66 to 2011-12 33

Figure 4.3: Unoccupied private dwellings, 2011 34

Figure 4.4: Per cent growth in dwellings and population between censuses 34

Housing and Rental Affordability Report | iii

List of Tables Table 1.1: Per cent of households in owner-occupied dwellings 1

Table 2.1: Inter-regional comparisons of median house price growth 7

Table 2.2: Inter-regional comparisons of loan repayment growth for houses 8

Table 2.3: Intertemporal comparisons of housing affordability for houses 8

Table 2.4: Inter-regional comparisons of median unit price growth 9

Table 2.5: Inter-regional comparisons of loan repayment growth for units 9

Table 2.6: Intertemporal comparisons of housing affordability for units 10

Table 3.1: Inter-regional comparisons of median rent growth for one bedroom flats 14

Table 3.2: Intertemporal comparisons of rental affordability for one bedroom flats 15

Table 3.3: Inter-regional comparisons of median rent growth for two bedroom flats 17

Table 3.4: Intertemporal comparisons of rental affordability for two bedroom flats 18

Table 3.5: Inter-regional comparisons of median rent growth for two bedroom houses 19

Table 3.6: Intertemporal comparisons of rental affordability for two bedroom houses 19

Table 3.7: Inter-regional comparisons of median rent growth for three bedroom flats 21

Table 3.8: Intertemporal comparisons of rental affordability for three bedroom flats 22

Table 3.9: Inter-regional comparisons of median rent growth for three bedroom houses 23

Table 3.10: Intertemporal comparisons of rental affordability for three bedroom houses 23

Table 3.11: Inter-regional comparisons of median rent growth for four bedroom houses 25

Table 3.12: Intertemporal comparisons of rental affordability for four bedroom houses 26

Table 4.1: Population size and growth rate 35

Table 4.2: Net new residents for selected service age groups – minimum estimates 35

Table 5.1: Housing and rental affordability ratios, Shire level 36

Table 5.2: New lettings by dwelling type (per cent of total) 37

Housing and Rental Affordability Report | iv

Executive Summary

This report seeks to measure the extent of decline in housing and rental affordability within the

Mornington Peninsula Local Government Area (LGA), i.e. ‘the Shire’. Housing (or rental) afford-

ability is measured by the ratio of gross weekly household income to the housing (or rental) af-

fordability income threshold, which is the minimum gross weekly income required such that 30

per cent of it is just enough to cover the weekly loan repayment (or rent).

The affordability analysis is conducted at the Shire and township levels using median price and

rent data from a variety of sources such as Land Data Victoria, the Department of Health and

Human Services, and Swinburne University. Income data from the Australian Bureau of Statis-

tics Census of Population and Housing is used to estimate the median, 2nd quintile (bottom 40

per cent) and 1st quintile (bottom 20 per cent) income levels of family and non-family house-

holds.

Between 1996 and 2015, the median house price and unit price increased faster than their

counterparts in Metropolitan Melbourne. The price growth also exceeded the rate of consumer

price inflation and income growth of family and non-family households. A median price house or

unit was still affordable for median income family households in 1996 but not 2015. For median

income non-family households, the median house price and unit price were already unafforda-

ble in 1996.

Tyabb had the most affordable house in 2004. Together with Baxter, Crib Point and Hastings,

these four towns were the only ones where the median house price was affordable for median

income family households. Ten years later, there were also only four towns with an affordable

median house price for median income family households. The most affordable of the four was

Baxter followed by Crib Point, Hastings and Rosebud West. There was no town with a median

house price that was affordable for median income non-family households in both 2004 and

2014.

Between June quarter 1999 and September quarter 2015, the median rent of all dwelling types,

except two bedroom flats, grew faster than their counterparts in Metropolitan Melbourne. They

also outpaced consumer price inflation and income growth of family and non-family households.

Notwithstanding that, median income family households were still able to cover their rent with-

in 30 per cent of their income for all dwelling types in September quarter 2015. For 2nd quintile

income family households, rent was within 30 per cent of income if they lived in one to two bed-

room flats or two to three bedroom houses in September quarter 2015. For 1st quintile family

households and non-family households of all three income classes, the median rent of all dwell-

ing types was unaffordable in September quarter 2015.

At the township level, the median rent of two bedroom dwellings is most affordable in Tyabb

and least in Mornington. Three bedroom dwellings are most affordable in Crib Point and least in

Portsea. For four bedroom dwellings, Rosebud West is the most affordable and Portsea the least.

It is evident from the analyses that non-family households in the lower half of the income distri-

bution are the ones most affected by the decline in rental affordability. The results also suggest

that renting has become a more affordable alternative to buying for family households. Likely

factors underlying the decline in affordability include lower interest rates post 1996, assistance

to first home buyers, negative gearing and capital gains tax concession, and population growth.

To improve affordability particularly for low-income households, this report suggests that the

recommendations provided by Kate Breen on inclusionary housing and zoning, and those by

Saul Eslake such as abolition of negative gearing, should be given serious consideration.

Housing and Rental Affordability Report | 1

1 Introduction

This report seeks to measure the extent of the affordability crisis in the housing and private

rental markets within the Mornington Peninsula Local Government Area (LGA), henceforth also

referred to as ‘the Shire’. The results of the affordability analysis provide the key material that

underpins the affordability section of the issues chapter in the Mornington Peninsula Housing

and Settlement Strategy report as well as the snapshot report of each individual township.

1.1 Background and Context

Declining housing and rental affordability is an issue that has generated tremendous debate

among government agencies, university academics, housing experts and private institutions

about its causes and solutions in recent decades. In Victoria, the Australian dream of home own-

ership has become increasingly impossible for prospective first home buyers despite consecu-

tive State governments’ promises to fix the affordability crisis. So severe has the issue become

that esteemed Australian economist, Saul Eslake, was critical of the Federal and State Govern-

ments role in contributing to the crisis in his affordable housing Submission to the Senate Eco-

nomics References Committee.1 Eslake argues that the affordability crisis is to a large extent a

result of the Federal and State Governments’ assistance to first home buyers and the distortion-

ary policies of negative gearing and generous capital gains tax concession. Indeed, Bill Shorten,

leader of the Federal opposition party, promises to restrict the scope of negative gearing to new

dwellings and reduce the tax concession on capital gains from the current 50 per cent to 25 up-

on winning the next election. The opposition leader argues that the proposed policy change

would provide great incentives to increase the supply of housing and stabilise house prices, ac-

cording to a research paper by University of NSW academic Richard Holden called “switching

gears”.2

In addition, low-income renters are increasingly displaced further away from Melbourne CBD as

rents in inner and middle ring suburbs surge upward due to factors such as gentrification and

rising housing costs.3 As a means of measuring the extent of the affordability crisis in the private

rental market, SGS Economics and Planning, in partnership with Shelter Australia and Commu-

nity Sector Banking, recently released a Rental Affordability Index (RAI) report.4 The RAI exam-

ines rental affordability for all renting households in each state of Australia by postcode or sub-

urb, with a particular focus on low income households. Unsurprisingly, the report finds low in-

come households facing severe rental stress all across Australia and concludes the lack of af-

fordable rental housing as an increasingly important driver of homelessness over traditional

factors such as escaping abuse, substance misuse, mental health issues and overcrowded hous-

ing.

Signs of declining housing affordability within the Shire can be seen in the falling per cent of

households in owner-occupied dwellings over the past five Censuses of Population and Housing

conducted by the Australian Bureau of Statistics (ABS) (Table 1.1). The decline is also experi-

enced on a larger scale across Greater Melbourne.

Table 1.1: Per cent of households in owner-occupied dwellings

1991 1996 2001 2006 2011

Mornington Peninsula 75.7 74.6 75.4 73.0 72.9

Greater Melbourne 70.4 70.4 70.1 67.9 66.8

Source: ABS Census of Population and Housing, 1991 to 2011 (enumerated data).

1 Eslake (2013). 2 Aston (2016). 3 Tenant's Union of Victoria (2016). 4 SGS Economics and Planning (2015).


A closer inspection of households in terms of housing tenure types reveals a sharp decline in the

proportion who fully owned their dwellings and a rise in the proportion with a mortgage since

the 2001 Census (Figure 1.1). On the other hand, the proportion of households in private rental

increased in general while the per cent of those in social rental decreased.

Figure 1.1: Housing tenure – Mornington Peninsula (per cent of total households)


The housing tenure trends exhibited in the Shire closely mirror those in Greater Melbourne

(Figure 1.2). In general, the proportion of households in fully owned dwellings and social rental

declined while that of mortgage and private rental increased.

Figure 1.2: Housing tenure – Greater Melbourne (per cent of total households)


Eslake argues that the per cent rise in households with a mortgage is a consequence of the over-

inflated housing market pushing mortgagers into longer housing loan terms. In addition, the

proportionate rise in private rental should not be inferred as a result of greater rental afforda-

bility but rather a consequence of increased difficulty for prospective first home buyers to break

into the housing market.


The similarity between the Shire’s and Greater Melbourne’s housing tenure trends are also re-

flected in the comparison chart in Figure 1.3, which shows that the proportion of fully owned

dwellings in the Shire is consistently higher than Greater Melbourne in the past five Censuses

while the reverse is true for both private and social rental. On the other hand, the proportion of

households with a mortgage rose more rapidly in Greater Melbourne and overtook the Shire by

a slight margin in the 2011 Census.

Figure 1.3: Housing tenure – inter-regional and intertemporal comparisons (per cent of

total households)

Source: ABS Census of Population and Housing, 1991 and 2011 (enumerated data).

It is within this context of declining home ownership and changing patterns of housing tenure

that this report seeks to ascertain the extent to which housing and rental affordability has de-

clined in the Shire. The methodology used to measure housing and rental affordability is ex-

plained in the next section.

1.2 Methodology

Affordability is a function of the capacity to pay and the cost of housing.5 The capacity to pay de-

pends primarily on income while the cost of housing is affected by a number of factors such as

the house (or rental) price, government grants, and mortgage interest rates.

In this report, housing (or rental) affordability is measured by the ratio of gross weekly house-

hold income to the housing (or rental) affordability income threshold:

Housing (rental) affordability ratio =Gross weekly household income

Housing (rental) affordability income threshold

The Housing Affordability Income Threshold (HAIT) or Rental Affordability Income Threshold

(RAIT) is the minimum gross weekly household income required such that 30 per cent of it is

just enough to cover the weekly loan repayment or rent respectively.6

A ratio of 1.2 or above is considered affordable, between 1.0 and 1.2 is considered acceptable,

and below 1.0 is considered unaffordable. A ratio of 0.3 would mean no surplus income left after

5 Sharam (2015). 6 HAIT = Weekly loan repayment 0.3⁄ ; RAIT = Weekly rent 0.3⁄ .


deducting loan repayment or rent. While ratios of 0.3 or less are not economically feasible, they

nevertheless indicate the severity of the affordability crisis.

Three classes of household income are considered in this report: (i) median – 50% of house-

holds; (ii) 2nd quintile – bottom 40%; and (iii) 1st quintile – bottom 20%. The upper limits of the

2nd and 1st quintile classes are used in the computations. While the median income class is the

only one considered when analysing housing affordability, all three income classes are consid-

ered in the rental affordability analysis.

The methodology adopted in this report is preferred because it requires the calculation of the

HAIT or RAIT, which thus provides an indication of the income level needed to achieve the min-

imum acceptable level of affordability. In addition, the use of ratios not only provides an indica-

tion of the level of affordability in a specific location but also facilitates comparisons between

two or more locations.

1.2.1 Housing Affordability Ratio

Housing in this report refers to both houses and units.

The Housing Affordability Ratio (HAR) is calculated on an annual basis. The median loan repay-

ment figures used to compute the HAIT are calculated from the median house price and unit

price data from Land Data Victoria (LDV). The interest rates used to calculate the loan repay-

ments are standard variable bank lending rates from the Reserve Bank of Australia. As the in-

terest rate data is a monthly series, the median interest rate in any given year is used to repre-

sent the annual data point.

It is assumed that the loan amount is 90 per cent of the house or unit price and the term of the

loan is 25 years. These assumptions, including the choice of using the median interest rate, are

consistent with those adopted by Housing in Victoria.

Median price data for both houses and units at the Shire and Metropolitan Melbourne levels are

available from 1985 to 2015. At the township level, the dataset only contains median price data

for houses, which is available from 2004 to 2015.

Out of the 40 townships in the Shire, 30 are included in the dataset (see Appendix for list of

townships).

1.2.2 Rental Affordability Ratio

The Rental Affordability Ratio (RAR) is calculated on a quarterly basis.

The data used to compute the RAR at the Shire level is based on the Quarterly Median Rents by

Local Government Area (September Quarter 2015) dataset from the Department of Health and

Human Services (DHHS) courtesy of Alex Inglis. The data comes from records kept by the Resi-

dential Tenancies Bond Authority (RTBA), which is responsible for receiving, registering and re-

funding all bonds associated with private residential leases in Victoria.7

The dataset contains median rent of one to three bedroom flats and two to four bedroom houses

from June quarter 1999 to September quarter 2015. The median rents are based on new lettings

in each quarter. The DHHS has limited the reporting of median rents to cells with at least 10

cases to report. A blank cell therefore means either no or fewer than 10 lettings for that quarter.

The Affordable Lettings data from the DHHS is also used to provide further insights into the

rental affordability crisis. This second dataset contains the number of new lettings of one to four

7 Victorian Government, Department of Health and Human Services (2015).


bedroom dwellings that are affordable to households on Centrelink income. It covers the sample

period March quarter 2000 to September quarter 2015.

The data used to compute the RAR at the township level is based on the 2015 3rd Quarter Victo-

rian Quarterly Suburb Data Metro dataset compiled by Lisa Ralston from Swinburne University

(SU). The dataset contains median rent of one to four bedroom dwellings as well as all dwellings

from March quarter 2011 to June quarter 2015. Similar to the DHHS dataset, data in the SU da-

taset is based on private rental that involves the lodgement of a bond with the RTBA for a period

of at least six months. Hence, private rental arrangements between landlords and tenants that

bypass the formal contractual agreements are excluded.

The median rents are based on new lettings in each quarter and computed only when there are

at least 5 cases to report. A blank cell therefore indicates either no or fewer than 5 lettings for

that quarter. For this reason, the SU dataset contains many blank cells either for the entire sam-

ple period or a few to many quarters. For example, median rent of one bedroom dwellings is

available for a small number of quarters in only five townships; in fact, one township has only

one data point.

In this report, only the median rent of two, three and four bedroom dwellings from the SU da-

taset are considered in the analysis at the township level. In addition, only the most recent

available quarter for each township, if data is available, is used to compute the RAR. The reason

for this decision is based on the relatively short sample period and numerous cells with no data

for many townships. These data issues imply that attempts to derive meaningful results from

trend analyses would likely yield little benefits.

1.2.3 Gross Weekly Household Income

The gross weekly household income used in this report is obtained from the past five ABS Cen-

suses of Population and Housing, i.e. 1996 to 2011. All past five censuses were conducted in the

month of August and the income data is sourced with respect to the Mornington Peninsula LGA.

To facilitate RAIT calculations on a quarterly basis, a number of techniques are deployed to de-

rive quarterly observations of household income. They include treating each census period as a

September quarter data point and using the trend exhibited in the ABS 6302.0 Average Weekly

Earnings (AWE) series to interpolate the intermediate quarters.8

Prior to the above procedures, the AWE series, which is available biannually in May and No-

vember up to May 2015, is first converted into quarterly data by treating the May and Novem-

ber observations as June and December quarters respectively and using a geometric average to

interpolate the intermediate quarters.

The above procedures enable the derivation of quarterly data points from September quarter

1996 to September quarter 2011. To obtain data points beyond September quarter 2011 up to

the September quarter of 2015, the last 18 data points of the derived quarterly series (June

quarter 2007 to September quarter 2011) are used to extrapolate a value for June quarter 2015.

The extrapolation is based on a linear trend given the linearity of the trend exhibited by the last

18 data points. The AWE series is then used to interpolate the intermediate quarters. Finally, a

value for September quarter 2015 is estimated based on the average quarterly growth rate of

the preceding four quarters.

The same set of techniques are used to derive quarterly data points for each of the three classes

of household income, i.e. median, 2nd quintile and 1st quintile.

8 Australian Bureau of Statistics (2015).


In contrast to the RAIT, the HAIT is calculated on an annual basis. Rather than working out an

annual average of the four quarters in any year using the derived quarterly data points of the

gross weekly household income series, the September quarter is used to represent the year.

The reason for using the September quarter rather than an annual average is due to the lack of

data to compute an annual average for the years 1996 and 2015. Moreover, variations within

any given year tend to be small such that differences between the annual average and the Sep-

tember quarter value would not be significant enough to generate material differences in the re-

sults.

1.3 Report Structure

This report is structured as follows:

Chapter 2 contains the affordability analysis of houses and units at the Shire level and

houses at the township level for median income family and non-family households.

Chapter 3 contains the affordability analysis of private rental at the Shire and township

levels for median, 2nd quintile and 1st quintile income classes of family and non-family

households.

Chapter 4 discusses the likely factors underlying the decline in affordability.

Chapter 5 concludes the report.


2 Housing Affordability

This chapter reports the results of the housing affordability analysis at the Shire and township

levels. Housing affordability analysis at the Shire level is conducted for both houses and units. At

the township level, the analysis is conducted for houses only.

2.1 Housing Affordability Analysis at the Shire Level

Housing affordability analysis at the Shire level is conducted for both houses and units based on

median house and unit prices from LDV respectively and income data from the ABS Census of

Population and Housing.

2.1.1 Houses

The median house price in both the Shire and Metropolitan Melbourne exhibited an upward

trend but plateaued from around 1989 to 1996 (Figure 2.1). After 1996, median house prices

rose sharply and peaked in 2014.

Figure 2.1: Median house price, Mornington Peninsula and Metropolitan Melbourne

(nominal dollars)

Source: Land Data Victoria.

Between 1996 and 2015, the median house price increased 4.68 and 3.51 times in the Shire and

Metropolitan Melbourne respectively (Table 2.1). These rates of increase are higher than the

rate at which the Consumer Price Index (CPI) rose (1.61 times) over the same period.9

Table 2.1: Inter-regional comparisons of median house price growth

Mornington

Peninsula

Metropolitan

Melbourne

Median house price in 1996 $108,000 $131,000

Median house price in 2015 $505,000 $460,000

Ratio of 2015 to 1996 median house price 4.68 3.51

9 The rate of increase is based on the September quarters of 1996 and 2015.


Assuming that households borrow 90 per cent of the house price for a loan term of 25 years at

the standard variable bank lending rate, loan repayment based on the median house price in-

creased 3.98 and 2.99 times in the Shire and Metropolitan Melbourne respectively (Table 2.2).

These rates of increase also exceeded the rate of increase in the CPI.

Table 2.2: Inter-regional comparisons of loan repayment growth for houses

Mornington

Peninsula

Metropolitan

Melbourne

Loan repayment in 1996 (per week) $199.89 $242.46


Ratio of 2015 to 1996 loan repayment 3.98 2.99

Loan repayment on a median price house in the Shire also rose more rapidly than the median

income of family and of non-family households in the region. This implies that housing afforda-

bility for median income family and non-family households must have declined.

Indeed, the HAR for median income family households decreased from 1.01 in 1996 to 0.60 in

2015 (Table 2.3). This indicates a fall from an acceptable level of affordability to an unaffordable

one. For median income non-family households, housing affordability halved in 2015 with the

HAR falling from an already unaffordable level of 0.42 to 0.21.

Table 2.3: Intertemporal comparisons of housing affordability for houses

1996 2015

Interest rate (% per annum) 9.75 7.8

Median house price $108,000 $505,000

Loan amount $97,000 $454,500

Term of loan (years) 25 25

Loan repayment (per week) $199.89 $795.67

Housing affordability income threshold (per week) $666.30 $2,652.23

Family Households

Median income (per week) $675.09 $1,590.38

Housing affordability ratio 1.01 0.60

Non-family Households

Median income (per week) $283.03 $561.82


N.B. HAR > 1.2 indicates ‘affordable’; 1.0 < HAR < 1.2 indicates ‘acceptable’; HAR < 1.0 indicates ‘unaffordable’.

In conclusion, the significant rise in the median price of houses relative to household income has

reduced the number of households in the Shire who could cover their loan repayment within 30

per cent of their income.


2.1.2 Units

The median unit price in both the Shire and Metropolitan Melbourne exhibited an upward trend

but plateaued from around 1990 to 1996 (Figure 2.2). From 1996, median unit prices rose sig-

nificantly and peaked in 2014.

Figure 2.2: Median unit price, Mornington Peninsula and Metropolitan Melbourne (nomi-

nal dollars)


Between 1996 and 2015, the median unit price increased 4.25 and 3.61 times in the Shire and

Metropolitan Melbourne respectively (Table 2.4). These rates of increase are higher than the

rate at which the CPI rose (1.61 times) over the same period.

Table 2.4: Inter-regional comparisons of median unit price growth

Mornington

Peninsula

Metropolitan

Melbourne

Median unit price in 1996 $89,500 $115,000

Median unit price in 2015 $380,000 $415,000

Ratio of 2015 to 1996 median unit price 4.25 3.61

Assuming that households borrow 90 per cent of the unit price for a loan term of 25 years at the

standard variable bank lending rate, loan repayment based on the median unit price increased

3.61 and 3.07 times in the Shire and Metropolitan Melbourne respectively (Table 2.5). These

rates of increase also exceeded the rate of increase in the CPI.

Table 2.5: Inter-regional comparisons of loan repayment growth for units

Mornington

Peninsula

Metropolitan

Melbourne



Ratio of 2015 to 1996 loan repayment 3.61 3.07


Loan repayment on a median price unit in the Shire also rose more rapidly than the median in-

come of family and of non-family households in the region. This implies that housing affordabil-

ity for median income family and non-family households in the Shire must have declined.

Indeed, the HAR for median income family households decreased from 1.22 in 1996 to 0.80 in

2015 (Table 2.6). This indicates a fall from an affordable level to an unaffordable one. For medi-

an income non-family households, housing affordability almost halved in 2015 with the HAR

falling from an already unaffordable level of 0.51 to 0.28.

Table 2.6: Intertemporal comparisons of housing affordability for units

1996 2015

Interest rate (% per annum) 9.75 7.8

Median unit price $89,500 $380,000

Loan amount $80,550 $342,000

Term of loan (years) 25 25

Loan repayment (per week) $165.65 $598.72

Housing affordability income threshold (per week) $552.16 $1,995.74

Family Households






N.B. HAR > 1.2 indicates ‘affordable’; 1.0 < HAR < 1.2 indicates ‘acceptable’; HAR < 1.0 indicates ‘unaffordable’.

In conclusion, the significant rise in the median price of units relative to household income has

reduced the number of households in the Shire who could cover their loan repayment within 30

per cent of their income.


2.2 Housing Affordability Analysis at the Township Level

Housing affordability analysis at the township level is conducted for houses only and based on

median house prices from LDV. Limitations on data availability imply that the analysis could on-

ly be carried out for 30 of the Shire’s 40 townships. Although data from 2004 to 2015 are avail-

able for most townships, a median price could not be generated in 2015 for three townships due

to insufficient house sales data. For this reason, median house price and housing affordability

comparisons across the 30 townships are restricted to between 2004 and 2014.

2.2.1 Median House Price Comparisons

In 2004, the town with the lowest median house price was Tyabb ($197,000) followed by Baxter

and Crib Point ($205,000), Hastings ($212,500) and Rosebud ($230,000). On the other end of

the scale, Portsea had the highest median house price ($880,000) followed by Sorrento

($530,000), Flinders ($525,000) and Mount Eliza ($484,000). The gap between the highest and

lowest was $683,000. A median price house in Portsea was 4.47 times dearer than the lowest

(Tyabb).

In 2014, Baxter ($325,000) replaced Tyabb with the lowest median house price followed by Crib

Point ($332,000), Hastings ($350,000) and Rosebud West ($355,000) (Figure 2.3). On the other

hand, Portsea continued to have the highest median house price ($1,305,000) while Flinders

($800,000) overtook Sorrento ($795,000) and Mount Eliza’s ($770,000) position remained un-

changed. The gap between the highest and lowest grew larger to $980,000. The number of times

a median price house in Portsea was dearer than the lowest (Baxter), however, fell to 4.02.

Figure 2.3: Median house price comparisons across 30 townships (nominal dollars)


Although Portsea has the highest median house price, its average annual price growth (4.02 %)

over the ten year period is among the lowest (Figure 2.4). Somers has the fastest price growth

(8.31 %) followed by Fingal (8.08 %), Arthurs Seat (7.85 %) and Red Hill (6.62 %).

Interestingly, Tyabb’s price growth (6.16 %) is just under Red Hill’s despite having the lowest

median house price in 2004. Other towns with a relatively low median house price in 2004 but

relatively high price growth include Rosebud (5.20 %), Somerville (5.15 %), Hastings (5.12 %)

and Tootgarook (5.02 %).


Figure 2.4: Average annual price growth comparisons across 30 townships (per cent per

annum)

N.B. Calculations by the author.

2.2.2 Housing Affordability Comparisons

In 2004, loan repayment on a median price house was at an acceptable level of affordability for

median income family households in only four of the 30 townships included in the analysis

(Figure 2.5). These towns, in decreasing order of their HAR, were Tyabb (1.11), Baxter and Crib

Point (1.07), and Hastings (1.03).

Ten years later, Baxter (1.09), Crib Point (1.07) and Hastings (1.02) continued to be on the list of

towns with an acceptably affordable median price house for median income family households

while Rosebud West (1.00) replaced Tyabb (0.99) as the fourth and last town on that list.

Among these four towns, housing affordability improved marginally in Baxter and Crib Point but

quite substantially in Rosebud West. In Hastings, however, housing affordability declined slight-

ly.

Figure 2.5: Housing affordability comparisons for median income family households

Housing affordability also improved for median income family households in another 10 towns.

Nonetheless, a median price house in these towns was still unaffordable in 2014 for median in-


come family households. Of the 17 towns where housing affordability declined, the decrease

was most substantial in Somers, Arthurs Seat and Fingal. Notwithstanding that, Portsea (0.27)

has the least affordable median price house in 2014 for median income family households fol-

lowed by Flinders (0.44), Sorrento (0.45) and Mount Eliza (0.46).

Housing affordability rank of the 30 townships for median income non-family households is

identical to that for family households of the same income class. This is unsurprising given that

both household types face an identical set of median house prices across the townships. The key

difference lies in the level of affordability.

Since non-family households tend to have a lower income level than family households, one

would expect the level of housing affordability for the former to be lower than the latter. Indeed,

these expectations are clearly borne out in Figure 2.6 where the HAR for every township is sub-

stantially lower. In both 2004 and 2014, a median price house was unaffordable for median in-

come non-family households in all 30 townships.

Figure 2.6: Housing affordability comparisons for median income non-family households

Housing affordability for median income non-family households declined over the ten year pe-

riod in every township except Cape Schanck. The decrease was most substantial in Tyabb, Ar-

thurs Seat, Somers and Fingal.


3 Rental Affordability

This chapter reports the results of the rental affordability analysis at the Shire and township

levels. Rental affordability analysis at the Shire level is conducted for one to three bedroom flats

and two to four bedroom houses. The analysis at the township level is conducted for two to four

bedroom dwellings.

3.1 Rental Affordability Analysis at the Shire Level

Rental affordability analysis at the Shire level is based on the DHHS Quarterly Median Rents by

LGA (September 2015) and income data from the ABS Census of Population and Housing.

3.1.1 One Bedroom Dwellings – Flats

The median rent of one bedroom flats in both the Shire and Greater Melbourne exhibited an

upward trend throughout the sample period June quarter 1999 to September quarter 2015

(Figure 3.1). Nonetheless, the Shire had a lower median rent than Greater Melbourne over the

same period.10

Figure 3.1: Median rent of one bedroom flats, Mornington Peninsula and Greater Mel-

bourne (dollars per week)

Source: DHHS Quarterly Median Rents by LGA – September 2015.

Between June quarter 1999 and September quarter 2015, the median rent increased 2.78 and

2.54 times in the Shire and Greater Melbourne respectively (Table 3.1). These rates of increase

are higher than the rate at which the CPI rose (1.59 times) over the same period.

Table 3.1: Inter-regional comparisons of median rent growth for one bedroom flats

Mornington

Peninsula

Greater

Melbourne

Median rent in June quarter 1999 (per week) $90 $130

Median rent in September quarter 2015 (per week) $250 $330

Ratio of Sep-2015 to Jun-1996 median rent 2.78 2.54

10 The gap in the Mornington Peninsula median rent series is due to insufficient rent data of one bedroom flats to generate a median.


The median rent in the Shire also rose more rapidly than the median, 2nd quintile and 1st quintile

incomes of family and of non-family households in the region. This implies that rental afforda-

bility for both family and non-family households in all three income classes must have declined.

For family households, the RAR for the median, 2nd quintile and 1st quintile income classes has

decreased from 2.57 to 1.91, 2.02 to 1.48 and 1.34 to 0.98 respectively (Table 3.2). Despite the

decrease, the median rent is still considered affordable for median and 2nd quintile income fami-

ly households. For family households in the 1st quintile income class, however, the median rent

has become unaffordable although it was affordable at the start of the sample period.

For non-family households, the RAR has similarly decreased for the median, 2nd quintile and 1st

quintile income classes from 1.04 to 0.67, 0.88 to 0.62 and 0.65 to 0.48 respectively. As a result,

the median rent, which was already unaffordable for the 2nd and 1st quintile income classes, has

become even more unaffordable. For non-family households in the median income class, the

median rent has also become unaffordable even though it was at an acceptable level of afforda-

bility at the start of the sample period.

Table 3.2: Intertemporal comparisons of rental affordability for one bedroom flats

June quarter

1999

September quarter

2015

Median rent (per week) $90 $250

Rental affordability income threshold (per week) $300.00 $833.33

Family Households


2nd quintile income (per week) $604.52 $1,230.49

1st quintile income (per week) $400.66 $817.30

Housing affordability ratio – median income 2.57 1.91

Housing affordability ratio – 2nd quintile income 2.02 1.48

Housing affordability ratio – 1st quintile income 1.34 0.98



2nd quintile income (per week) $263.61 $518.19





N.B. RAR > 1.2 indicates ‘affordable’; 1.0 < RAR < 1.2 indicates ‘acceptable’; RAR < 1.0 indicates ‘unaffordable’.

The decline in rental affordability of one bedroom flats is further supported by the affordable

lettings data released by the DHHS. The affordable lettings data report the number of new let-

tings that are affordable to households on Centrelink income. Lettings of one bedroom dwellings

are considered affordable if rent is within 30 percent of the gross income of single persons on

Newstart Allowance.11

The sample period covered by the affordable lettings data is March quarter 2000 to September

quarter 2015. At the start of the period, there were 9 affordable lettings of one bedroom dwell-

ings, i.e. 40.9 per cent of total one bedroom lettings. At the end of the period, there were none. In

11 Tenant's Union of Victoria (2016).


fact, there was no affordable one bedroom letting as early as June quarter 2009. Over the sample

period, the highest number recorded was only 13.

Figure 3.2 shows a downward trend in the number of affordable one bedroom lettings until June

quarter 2009 where the number began to fluctuate between zero and two.

Figure 3.2: Affordable lettings of one bedroom dwellings

Source: DHHS Affordable Lettings – September 2015.

In conclusion, the significant rise in the median rent of one bedroom dwellings relative to

household income has not only reduced the number of households who could cover their rent

within 30 per cent of their income but also decreased the number of affordable one bedroom

lettings for single persons on Newstart Allowance in the Shire.


3.1.2 Two Bedroom Dwellings – Flats and Houses

The median rent of two bedroom flats in both the Shire and Greater Melbourne exhibited an



same period.

Figure 3.3: Median rent of two bedroom flats, Mornington Peninsula and Greater Mel-






Table 3.3: Inter-regional comparisons of median rent growth for two bedroom flats

Mornington

Peninsula

Greater

Melbourne










ly households. For family households in the 1st quintile income class, however, the median rent

has become unaffordable although it was at an acceptable level of affordability at the start of the

sample period.




the median rent, which was already unaffordable at the start of the sample period, has become

even more unaffordable for all three income classes of non-family households.

Table 3.4: Intertemporal comparisons of rental affordability for two bedroom flats

June quarter

1999

September quarter

2015



Family Households















The median rent of two bedroom houses in both the Shire and Greater Melbourne exhibited an



same period.

Figure 3.4: Median rent of two bedroom houses, Mornington Peninsula and Greater Mel-







Table 3.5: Inter-regional comparisons of median rent growth for two bedroom houses

Mornington

Peninsula

Greater

Melbourne





incomes of family and of non-family households. This implies that rental affordability for both

family and non-family households in all three income classes must have declined.




ly households. For family households in the 1st quintile income class, however, the median rent,

which was already unaffordable at the start of the sample period, has become even more unaf-

fordable.





Table 3.6: Intertemporal comparisons of rental affordability for two bedroom houses

June quarter

1999

September quarter

2015



Family Households
















The decline in rental affordability of two bedroom dwellings is further supported by the afford-

able lettings data released by the DHHS. The affordable lettings data report the number of new

lettings that are affordable to households on Centrelink income. Lettings of two bedroom dwell-

ings are considered affordable if rent is within 30 percent of the gross income of single parents

on Parenting Payment with one child.12


quarter 2015. At the start of the period, there were 127 affordable lettings of two bedroom

dwellings, i.e. 46.7 per cent of total two bedroom lettings. At the end of the period, there were

only 25 (9.7 per cent). In fact, there were as few as 20 affordable two bedroom lettings as early

as June quarter 2011. Over the sample period, the highest number recorded was 161.

Figure 3.5 shows a downward trend in the number of affordable two bedroom lettings despite a

very brief rise initially. From June quarter 2011, the trend began to stabilise around the mid-30

mark.

Figure 3.5: Affordable lettings of two bedroom dwellings


In conclusion, the significant rise in the median rent of two bedroom dwellings relative to


within 30 per cent of their income but also decreased the number of affordable two bedroom

lettings for single parents on Parenting Payment with one child in the Shire.



3.1.3 Three Bedroom Dwellings – Flats and Houses

The median rent of three bedroom flats in both the Shire and Greater Melbourne exhibited an



same period.

Figure 3.6: Median rent of three bedroom flats, Mornington Peninsula and Greater Mel-






Table 3.7: Inter-regional comparisons of median rent growth for three bedroom flats

Mornington

Peninsula

Greater

Melbourne









decrease, the median rent is still considered affordable for median income family households.

For family households in the 2nd quintile income class, however, the median rent has become

unaffordable although it was affordable at the start of the sample period. For family households

in the 1st quintile income class, the median rent, which was already unaffordable at the start of

the sample period, has become even more unaffordable.





even more unaffordable for all three classes of non-family households.

Table 3.8: Intertemporal comparisons of rental affordability for three bedroom flats

June quarter

1999

September quarter

2015


Rental affordability income threshold (per week) $466.67 $1,266.67

Family Households















The median rent of three bedroom houses in both the Shire and Greater Melbourne exhibited an



same period.

Figure 3.7: Median rent of three bedroom houses, Mornington Peninsula and Greater

Melbourne (dollars per week)






Table 3.9: Inter-regional comparisons of median rent growth for three bedroom houses

Mornington

Peninsula

Greater

Melbourne









decrease, the median rent is still considered affordable for median income and acceptable for

2nd quintile income family households. For family households in the 1st quintile income class,

however, the median rent, which was already unaffordable at the start of the sample period, has

become even more unaffordable.





Table 3.10: Intertemporal comparisons of rental affordability for three bedroom houses

June quarter

1999

September quarter

2015



Family Households
















The decline in rental affordability of three bedroom dwellings is further supported by the af-

fordable lettings data released by the DHHS. The affordable lettings data report the number of

new lettings that are affordable to households on Centrelink income. Lettings of three bedroom

dwellings are considered affordable if rent is within 30 percent of the gross income of couples

on Newstart Allowance with two children.13


quarter 2015. At the start of the period, there were 262 affordable lettings of three bedroom

dwellings, i.e. 63.7 per cent of total three bedroom lettings. At the end of the period, there were

142 (23.5 per cent). In fact, there were as few as 74 affordable three bedroom lettings as early

as March quarter 2011. Over the sample period, the highest number recorded was 352.

Figure 3.8 shows a downward trend in the number of affordable three bedroom lettings despite

a brief rise initially. From March quarter 2011, the trend began to stabilise.

Figure 3.8: Affordable lettings of three bedroom dwellings


In conclusion, the significant rise in the median rent of three bedroom dwellings relative to


within 30 per cent of their income but also decreased the number of affordable three bedroom

lettings for couples on Newstart Allowance with two children in the Shire.



3.1.4 Four Bedroom Dwellings – Houses

The median rent of three bedroom houses in both the Shire and Greater Melbourne exhibited an


(Figure 3.9).

Although the Shire had a lower median rent than Greater Melbourne in nearly every quarter

during the first two-thirds of the sample period, its median rent surpassed the latter region

permanently since June quarter 2010.

Figure 3.9: Median rent of four bedroom houses, Mornington Peninsula and Greater Mel-






Table 3.11: Inter-regional comparisons of median rent growth for four bedroom houses

Mornington

Peninsula

Greater

Melbourne







With respect to family households, the RAR for the median, 2nd quintile and 1st quintile income

classes has decreased from 1.10 to 1.02, 0.86 to 0.79 and 0.57 to 0.52 respectively (Table 3.12).

Despite the decrease, the median rent still remains at an acceptable level of affordability for me-

dian income family households. For family households in the 2nd and 1st quintile income classes,

however, the median rent, which was already unaffordable at the start of the sample period, has

become even more unaffordable.


With respect to non-family households, the RAR has similarly decreased for the median, 2nd

quintile and 1st quintile income classes from 0.44 to 0.36, 0.38 to 0.33 and 0.28 to 0.26 respec-

tively. As a result, the median rent, which was already unaffordable at the start of the sample

period, has become even more unaffordable for all three income classes of non-family house-

holds.

Table 3.12: Intertemporal comparisons of rental affordability for four bedroom houses

June quarter

1999

September quarter

2015



Family Households















The decline in rental affordability of four bedroom houses is further supported by the affordable

lettings data released by the DHHS. The affordable lettings data report the number of new let-

tings that are affordable to households on Centrelink income. Lettings of four bedroom dwell-

ings are considered affordable if rent is within 30 percent of the gross income of couples on

Newstart Allowance with four children.14


quarter 2015. At the start of the period, there were 39 affordable lettings of four bedroom

dwellings, i.e. 41.5 per cent of total four bedroom lettings. At the end of the period, there were

33 (17.4 per cent). In fact, there were as few as 26 affordable four bedroom lettings as early as

December quarter 2010. Over the sample period, the highest number recorded was 88.

Figure 3.10 shows a downward trend in the number of affordable four bedroom lettings despite

a brief rise initially. From December quarter 2010, the trend began to stabilise.

In conclusion, the significant rise in the median rent of four bedroom houses relative to house-

hold income has not only reduced the number of households who could cover their rent within

30 per cent of their income but also decreased the number of affordable four bedroom lettings

for couples on Newstart Allowance with four children in the Shire.



Figure 3.10: Affordable lettings of four bedroom dwellings



3.2 Rental Affordability Analysis at the Township Level

Rental affordability analysis at the township level is based on the SU 2015 3rd Quarter Victorian

Quarterly Suburb Data Metro and income data from the ABS Census of Population and Housing.

Limited data availability implies that the analysis of two, three and four bedroom dwellings

could only be carried out for 19, 25 and 20 townships respectively (see Appendix for list of

townships).

Another limitation is cells with no data. Of the 19, 25 and 20 townships where data is available

for two, three and four bedroom dwellings respectively, data is available in every quarter of the

sample period March quarter 2011 to June quarter 2015 for only 9, 14 and 6 townships respec-

tively. Due to these constraints, and the relatively short sample period, the analysis will only fo-

cus on rental affordability comparisons across townships using the most recent quarter availa-

ble in each town.

Given that the most recent quarter available differs across townships, care should be exercised

when interpreting the results below. Unless otherwise stated, the most recent quarter available

is June quarter 2015.

3.2.1 Two Bedroom Dwellings

There are 19 townships where the median rent of two bedroom dwellings is available. For all

three income classes of family households, the median rent in Tyabb is most affordable while

Mornington has the least affordable median rent (Figure 3.11).

Figure 3.11: Rental affordability comparisons for family households in two bedroom

dwellings

* Most recent quarter available is December 2014 for McCrae, St Andrews Beach and Tyabb, September 2014 for Sorrento,

September 2013 for Blairgowrie, and March 2012 for Balnarring and Bittern.

Median income family households would find the median rent of two bedroom dwellings afford-

able in all 19 townships.

For 2nd quintile income family households, the number of towns with an affordable median rent

reduces to 14; nevertheless, the median rent in the remaining five towns is still at an acceptable

level of affordability. These five towns are Mount Martha (1.18), McCrae (1.17), Mount Eliza

(1.15), Balnarring (1.18) and Mornington (1.12).

For 1st quintile income family households, the median rent is unaffordable in all 19 townships.


For non-family households, the level of affordability is substantially lower relative to family

ones in all three income classes (Figure 3.12). In all 19 townships, the median rent of two bed-

room dwellings is unaffordable for all three income classes of non-family households.

Figure 3.12: Rental affordability comparisons for non-family households in two bedroom

dwellings

* Most recent quarter available is December 2014 for McCrae, St Andrews Beach and Tyabb, September 2014 for Sorrento,

September 2013 for Blairgowrie, and March 2012 for Balnarring and Bittern.

3.2.2 Three Bedroom Dwellings

There are 25 townships where the median rent of three bedroom dwellings is available. For all

three income classes of family households, the median rent in Crib Point is most affordable

while Portsea has the least affordable median rent (Figure 3.13).

Figure 3.13: Rental affordability comparisons for family households in three bedroom

dwellings

* Most recent quarter available is March 2015 for Pearcedale, December 2014 for St Andrews Beach, September 2014 for

Portsea, March 2014 for Balnarring, and March 2012 for Arthurs Seat and Fingal.

Median income family households would find the median rent of three bedroom dwellings af-

fordable, acceptable and unaffordable in 20, three and two townships respectively. The three


townships where the median rent is acceptable are Balnarring (1.19), Mount Martha (1.09) and

Sorrento (1.03); the two townships where it is unaffordable are Mount Eliza (0.99) and Portsea

(0.97).

For 2nd quintile income family households, the number of towns with an affordable median rent

reduces to two while the number for acceptable and unaffordable median rent increases to 13

and 10 respectively. The two townships where the median rent is affordable are Crib Point

(1.27) and Fingal (1.20).



ones in all three income classes (Figure 3.14). In all 25 townships, the median rent of three bed-


Figure 3.14: Rental affordability comparisons for non-family households in three bed-

room dwellings

* Most recent quarter available is March 2015 for Pearcedale, December 2014 for St Andrews Beach, September 2014 for

Portsea, March 2014 for Balnarring, and March 2012 for Arthurs Seat and Fingal.

3.2.3 Four Bedroom Dwellings

There are 20 townships where the median rent of three bedroom dwellings is available. For all

three income classes of family households, the median rent in Rosebud West is most affordable

while Portsea has the least affordable median rent (Figure 3.15).

Median income family households would find the median rent of four bedroom dwellings af-

fordable, acceptable and unaffordable in six, eight and six townships respectively. The six town-

ships with an affordable median rent are Rosebud West (1.44), Tootgarook (1.36), Crib Point

(1.31), Dromana (1.27), Hastings (1.26) and Somerville (1.24). On the other end of the scale,

Blairgowrie (0.99), Safety Beach (0.97), Mount Martha (0.86), Mount Eliza (0.82), Sorrento

(0.82) and Portsea (0.50) are the six townships with an unaffordable median rent.

For 2nd quintile income family households, the number of towns with an acceptable median rent

reduces to three while the number for unaffordable median rent increases to 17. The three

townships with an acceptable median rent are Rosebud West, Tootgarook and Crib Point. There

is no town where the median rent is affordable for 2nd quintile income family households.



Figure 3.15: Rental affordability comparisons for family households in four bedroom

dwellings

* Most recent quarter available is March 2015 for Somers and Somerville, December 2014 for Blairgowrie, McCrae and

Portsea, March 2013 for Bittern and Crib Point, and June 2011 for Tyabb.


ones in all three income classes (Figure 3.16). In all 20 townships, the median rent of four bed-


Figure 3.16: Rental affordability comparisons for non-family households in four bedroom

dwellings

* Most recent quarter available is March 2015 for Somers and Somerville, December 2014 for Blairgowrie, McCrae and

Portsea, March 2013 for Bittern and Crib Point, and June 2011 for Tyabb.


4 Factors Underlying the Decline in Affordability

This chapter discusses the factors that likely underpin the decline in housing and rental afforda-

bility reported in the previous two chapters. The four factors included in the discussion are:

Lower interest rates post 1996

Assistance to first home buyers

Negative gearing and capital gains tax concession

Population growth

4.1 Lower Interest Rates Post 1996

Since the start of John Howard’s prime ministerialship in 1996, lending rates for housing loans

fell considerably and averaged around 7.36 % per annum over the period 1996 to 2011 (Figure

4.1). In contrast, lending rates over the period 1987 to 1995 averaged around 12.78 % per

annum. While lower interest rates are generally good news for prospective first home buyers,

they could also cause the housing market to overheat due to excessive borrowings for

investment properties.

Figure 4.1: Indicator lending rates for housing loans (per cent per annum)

Source: Reserve Bank of Australia – standard variable bank owner-occupier rates.

4.2 Assistance to First Home Buyers

Assistance to first home buyers began in 1964 when the Menzies Government started giving

cash grants of up to $500 to ‘married or engaged couples under the age of 36’ who are buying

their first home valued at no more than $14,000. Since then, subsequent Commonwealth Gov-

ernments had either abolished the scheme or reintroduced it with more generous amounts

and/or looser conditions. By 2000, the assistance, called First Home Owners Grant (FHOG) un-

der the Howard Government, was available to eligible persons without any income test or upper

limit on the purchase price of homes acquired. Further assistance was also provided by most

State and Territory Governments. An example is the Victorian Government’s $5,000 additional

grant for buyers of new homes in rural and regional areas.

Esteemed Australian economist, Saul Eslake, estimates that around $22.5 billion (in 2010-11

dollar values) had been spent by the Commonwealth, State and Territory Governments on cash

grants to first home buyers between 1964 and 2011 (Figure 4.2). State and Territory Govern-


ment also provided indirect financial assistance in the form of partial or total exemption from

stamp duties. In 2011-12 alone, Eslake estimates these were worth around $3 billion.

Figure 4.2: Spending on cash assistance to first home buyers, 1965-66 to 2011-12

Source: Saul Eslake (2013).

Economists have long argued that cash handouts for first home buyers do nothing to improve

housing affordability but simply add upward pressure on housing prices and enrich vendors in

the process. For this reason, Eslake calls these grants ‘Existing Home Vendors’ Grants’.

4.3 Negative Gearing and Capital Gains Tax Concession

Negative gearing is a long-standing policy which allows taxpayers who had acquired property or

shares with borrowed money to defer tax on their wage and salary income until these assets

were sold if the interest they were paying exceeded the rent or dividends received. Eslake ar-

gues that negative gearing became a vehicle for permanently reducing, as well as deferring, per-

sonal tax liabilities following the Howard Government’s 1999 decision to tax capital gains at half

the rate applicable to other income instead of taxing inflation-adjusted capital gains at a taxpay-

er’s full marginal rate. In addition, the availability of depreciation on buildings as a means to de-

crease tax liabilities provided further opportunities to the way in which negative gearing con-

verts ordinary income taxable at full rates into capital gains taxable at half rates.

The effect of negative gearing and the generous capital gains tax concession on the Mornington

Peninsula can be seen in the holiday homes market. Due to its unique landscape, long scenic

coastline and proximity to Melbourne, the Mornington Peninsula has long been considered Mel-

bourne’s playground. Unlike Greater Melbourne, where only 8.1 % of private dwellings were

unoccupied on average during the past census nights from 1991 to 2011, 33.5 % of private

dwellings were unoccupied on average in the Shire.

Many of these vacant dwellings, used as holiday homes and/or held for investment purposes,

are located in townships that have excellent beach access, services and amenities (Figure 4.3).

Examples include Portsea, Sorrento, Blairgowrie, Dromana, Safety Beach, Flinders and Shore-

ham.

Within the first seven years following the Howard Government’s changes to the capital gains tax

in 1999, the Mornington Peninsula experienced a huge surge in the number of unoccupied pri-

vate dwellings – 25,043 in 2006, an increase of 2,921 relative to 2001. The size of this increase

in percentage terms is nearly twice of Greater Melbourne’s rate of population growth (Figure

4.4).


Figure 4.3: Unoccupied private dwellings, 2011

Source: Profile id using data from the ABS Census of Population and Housing, 2011.

In other census years except 2001, the rate of increase is more or less in line with Greater Mel-

bourne’s rate of population growth. This suggests that the proportion of Greater Melbourne res-

idents choosing to have a holiday home in the Mornington Peninsula for lifestyle and/or in-

vestment reasons had significantly increased by 2006.

Figure 4.4: Per cent growth in dwellings and population between censuses


The strong incentive to acquire a holiday home for investment purposes driven by an improved

set of economic conditions cannot be understated given the high number of cases involving tax-

payers who try to claim full-year deductions on their tax returns despite only renting out their

holiday homes for just a few weeks in a year.15

4.4 Population Growth

Recent statistical forecasts from the Australian Bureau of Statistics expect Melbourne’s popula-

tion to surpass Sydney in the 2050s even though some demographers believe it may happen

sooner.16 Although the Mornington Peninsula is not considered a growth municipality given its

unique recreation and tourism role to Greater Melbourne and Victoria, its population over the

15 For examples, see media reports by Khadem (2016) and Khadem and Lenaghan (2016). 16 Royall (2015).


20-year period of the last five censuses has in fact grown at a faster pace than Greater Mel-

bourne’s (Table 4.1).

Table 4.1: Population size and growth rate

1991 2011 Average Annual

Growth Rate

Mornington Peninsula 102,108 140,111 1.59 %

Greater Melbourne 3,060,152 3,976,031 1.32 %


By comparing the population size for selected service age groups with the size five years ago,

the minimum number of net new residents added to the Mornington Peninsula for each service

age group can be determined (Table 4.2). The statistics show that persons belonging to the ‘par-

ents and homebuilders’ service age group (35 to 49) constitute the largest number of net new

residents consistently over the 20-year period of the last five censuses.17 Most of these new res-

idents may be ex-Mornington Peninsula residents returning after completing post-secondary

education and working for around 10 to 15 years in Melbourne or other places.

Table 4.2: Net new residents for selected service age groups – minimum estimates

1996 2001 2006 2011

Young workforce (25 to 34) 835 1,954 75 481

Parents and homebuilders (35 to 49) 1,132 2,983 1,758 3,196

Older workers and pre-retirees (50 to 59) 787 2,175 780 322

Empty nesters and retirees (60 to 69) 972 2,061 964 1,129


The statistics also show that the Mornington Peninsula received the largest number of net new

residents between 1996 and 2001 across all of the selected service age groups. This is likely due

to the baby boomers that would be around the ages of 35 to 55 in year 2000. This may explain

the very high growth in occupied private dwellings and decline in unoccupied private ones over

the same period as shown in Figure 4.4.

The most concerning aspect of Mornington Peninsula’s demographics is the fact that the gap be-

tween the growth of private occupied dwellings and population growth has significantly nar-

rowed post 2001 (Figure 4.4). Given that the Shire is a highly attractive location for prospective

sea changers including baby boomers transitioning into retirement18, and a large portion of hol-

iday homes are locked in for long-term investment, median house prices are likely to be pushed

up even further if growth of private dwellings for residence fails to keep up with population

growth.

17 These numbers are likely to understate the true figures since persons who move out of the Shire or die between censuses are not accounted for. For this reason, they are considered mini-mum estimates. 18 Hugo and Harris (2013).


5 Conclusion

This report sought to measure the extent of the affordability crisis in the housing and rental

markets in the Shire. Using median price and rent data from various sources, and income data

from the ABS Census of Population and Housing, housing and rental affordability ratios are

computed at the Shire and township levels for family and non-family households in the median,

2nd quintile and 1st quintile income classes.

It is clear from the analysis that the faster rise in housing and rental prices relative to household

incomes has significantly eroded housing and rental affordability for both family and non-family

households. The crisis, however, is more severe for non-family households. A summary of the

results at the Shire level in Table 5.1 shows that only median income family households in pri-

vate rental of all dwelling types are still able to cover their rent within 30 per cent of their in-

come while family household renters in the 2nd quintile income class are still able to do so for

only one to two bedroom flats and two to three bedroom houses.

Table 5.1: Housing and rental affordability ratios, Shire level

Housing Affordability Ratios – 2015

Houses Units

Median Income

Family households

Non-family households

0.60

0.21

0.80

0.28

Rental Affordability Ratios – September Quarter 2015

FLATS

One Bedroom Two Bedroom Three Bedroom

Family Households

Median income

2nd quintile income

1st quintile income

1.91

1.48

0.98

1.65

1.27

0.85

1.26

0.97

0.65


Median income

2nd quintile income

1st quintile income

0.67

0.62

0.48

0.58

0.54

0.42

0.44

0.41

0.32

HOUSES

Two Bedroom Three Bedroom Four Bedroom

Family Households

Median income

2nd quintile income

1st quintile income

1.70

1.32

0.88

1.36

1.05

0.70

1.02

0.79

0.52


Median income

2nd quintile income

1st quintile income

0.60

0.56

0.43

0.48

0.44

0.34

0.36

0.33

0.26

N.B. Ratio > 1.2 indicates ‘affordable’; 1< ratio < 1.2 indicates ‘acceptable’; ratio < 1 indicates ‘unaffordable’.

These results suggest that renting has become a more affordable alternative to buying for family

households, which may explain the big increase in the share of total new lettings with respect to

three bedroom flats and four bedroom houses (Table 5.2).


Table 5.2: New lettings by dwelling type (per cent of total)

June Quarter 1999 September Quarter 2015

One bedroom flats 2.3 2.6

Two bedroom flats 25.2 14.8

Three bedroom flats 3.7 12.8

Two bedroom houses 11.7 9.9

Three bedroom houses 48.2 44.8

Four bedroom houses 8.9 15.1


The severe decline in housing and rental affordability for non-family households would certain-

ly have driven some out of the housing and private rental markets and into the streets. This then

adds further pressure to the already long waiting list for public housing.

Although effective and permanent solutions to the crisis are not easy to find, this report recom-

mends a number of strategies that may help improve affordability particularly for low-income

households. At the State level, policies such as inclusionary zoning and inclusionary housing

could be explored.

Inclusionary zoning is a specific land-use policy requirement that deliver affordable housing

outcomes as a condition of development; these requirements may be mandatory or voluntary.19

For example, the policy may require a developer to provide a certain proportion of apartments

at an affordable price to low-income households.

Inclusionary housing is a policy that supports the delivery of affordable housing within a com-

munity or development with a goal of supporting greater inclusiveness through integrated de-

velopments.20

Drawing on her research on international approaches to facilitating affordable housing out-

comes, Kate Breen, Director of Affordable Development Outcomes, recommends four ways in

which these approaches could be applied to Victoria.21 The four ways are:

1. A community-driven ‘Priority Development and Infrastructure Program’ linking infra-

structure investment to new housing supply.

2. A policy structure for implementing inclusionary zoning requirements on surplus gov-

ernment owned land in Victoria.

3. Scenarios where inclusionary zoning requirements could be placed on privately owned

land in Victoria.

4. A greater diversity of affordable housing programs to facilitate housing choice and in-

clusive communities, whilst also supporting development viability.

At the federal level, Saul Eslake recommends a switching from policies that inflate the demand

for housing to those that boost the supply of housing.22 These policies include:

1. The abolition of all existing policies which serve only to increase the prices of existing

dwellings, such as cash grants to and stamp duty exemptions for first time buyers, and

negative gearing for investors.

2. The redirection of the funds thereby saved toward programs that increase the supply of

housing or incentivise private sector developers to increase the proportion of afforda-

ble dwellings within their developments, whether for sale or rental.

19 Breen (2015). 20 Ibid. 21 Ibid. 22 Eslake (2013).


3. Expanding or replicating programs like Western Australia’s ‘Keystart’ scheme.

4. Changing the way in which State and Territory Governments tax holdings of and trans-

actions in land so as to encourage more efficient use of it.

5. Taking a more ‘holistic’ view of urban infrastructure investment by recognising that

public (or private) investment in transport infrastructure can make a tangible contribu-

tion toward improving housing supply and affordability, and considering funding such

infrastructure by levies on the increments to the value of the and which result from

such investments.

6. Revisiting current models for financing the provision of infrastructure and services in

‘greenfields’ housing estates with a view to reducing the extent to which these are

funded by ‘upfront’ charges.

7. Reducing the cost, complexity and regulatory uncertainty associated with ‘brownfields’

and ‘infill’ developments in established areas through, for example, clearer and more

uniform planning rules, with fewer opportunities for frivolous or vexatious objections

and appeals.


References

Aston, Heath. “Shorten unveils Labor election policy: No more negative gearing for existing

homes (12 February).” 2016.

Australian Bureau of Statistics. “6302.0 Average Weekly Earnings, Australia - Table 13B Average

Weekly Earnings, Victoria (Dollars) - Original.” 2015.

Breen, Kate. International approaches to facilitating affordable housing outcomes and their

application to Victoria, Australia. The Winston Churchill Memorial Trust of Australia,

2015.

Eslake, Saul. “Australian Housing Policy: 50 Years of Failure.” 2013.

Hugo, Graeme J., and Kevin R. Harris. Time and tide: moving towards an understanding of

temporal population changes in coastal Australia. Australian Population and Migration

Research Centre, University of Adelaide, 2013.

Khadem, Nassim. ATO crackdown on rental properties, holiday homes (22 January). The Age,

2016.

Khadem, Nassim, and Nick Lenaghan. ATO goes after holiday homes rorts (16 August). Financial

Review, 2016.

Royall, Ian. Booming Melbourne population on track to overtake Sydney (3 December). Herald

Sun, 2015.

SGS Economics and Planning. “Rental Affordability Index: Release Report.” 2015.

Sharam, Andrea. Equity Land Trusts in Australia. Swinburne Institute for Social Research, 2015.

Tenant's Union of Victoria. “Shifting Geographies of Rental Affordability.” 2016.

Victorian Government, Department of Health and Human Services. Rental Report - September

Quarter 2015. DHHS, State of Victoria, 2015.


Appendix

The table below presents the list of townships in the Shire and the towns for which data is avail-

able for analysis at the township level.

Housing afford-ability analysis

Rental affordability analysis

Houses 2 bedroom 3 bedroom 4 bedroom

Arthurs Seat

Balnarring

Balnarring Beach

Baxter

Bittern

Blairgowrie

Boneo

Cape Schanck

Crib Point

Dromana

Fingal

Flinders

Hastings

HMAS Cerberus

Main Ridge

McCrae

Merricks

Merricks Beach

Merricks North

Moorooduc

Mornington

Mount Eliza

Mount Martha

Pearcedale

Point Leo

Portsea

Red Hill

Red Hill South

Rosebud

Rosebud West

Rye

Safety Beach

Shoreham


Somers

Somerville

Sorrento

St Andrews Beach

Tootgarook

Tuerong

Tyabb

Documents

Housing and Rental Affordability Report